US Dollar Index (DX) Futures Technical Analysis – Will Trump’s State of the Union Speech Fuel Massive Short-covering Rally?

The U.S. Dollar plunged against a basket of currencies last week, reaching a three-year low in the process. The bulk of the selling was fueled by dovish comments from Treasury Secretary Steven Mnuchin.

March U.S. Dollar Index futures settled the week at 88.891, down 1.479 or -1.64%.

President Trump tried to save the dollar late in the week, saying Mnuchin’s comments had been misinterpreted and by saying he wanted a “stronger dollar.” However, sellers apparently didn’t believe him.

The week begins with the dollar in an oversold position. President Trump could trigger a strong short-covering rally when he gives his State of the Union speech on Tuesday night.

Weekly Swing Chart Analysis

The main trend is down according to the weekly swing chart. A trade through 88.255 will signal a resumption of the uptrend. This could lead to a test of the December 16, 2014 main bottom at 88.067.

This week is the seventh week down from the last main top at 93.825. This puts the dollar index in the window of time for a potentially bullish closing price reversal bottom.

On the upside, the nearest resistance is the September 8 main bottom at 90.68.

The current short-term range is 93.825 to 88.255. If this range holds in place and buyers overcome 90.68 then we could see a test of the retracement zone at 91.04 to 91.70.

Weekly Swing Chart Forecast

The direction of the dollar index this week will be determined by trader reaction to last week’s low at 88.255.

Taking out 88.255 will signal a resumption of the downtrend. This is followed by 88.067. This is possible trigger point for an acceleration to the downside.

Taking out 88.255 then recovering last week’s close at 88.891 will signal the presence of buyers.

Taking out 88.255 then closing above 88.891 will form a closing price reversal bottom. This could lead to the start of a 2 to 3 week short-covering rally.